What are dilapidations?
The term 'property dilapidations' refers to the damages or disrepair that may occur to a property. This term is crucial for landlords and tenants alike when negotiating lease agreements and dealing with property conditions at the end of a lease.
Dilapidations may have been caused by mistreatment, neglect or simply have gone unnoticed. A landlord will typically arrange for some level of building consultancy throughout a lease period, where a surveyor will assess the property. If a tenant does not comply by completing all required repairs to reinstate the property's original condition by the end of a commercial lease, a schedule of dilapidations may be carried out or a dilapidation claim served.
Ultimately, the dilapidations protocol is to protect both landlords and tenants. A commercial property lease states the condition a property should be in at the end of a lease. Landlords, to ensure their property does not decrease in value for repairs that they are not liable for, and tenants to ensure they do not pay for repairs that were not stated in the original agreement.
For tenants
Dilapidations consultants help protect tenants from overpaying for repairs. They advise, guide and assess the validity of a survey.
Lease breaches are almost inevitable, even if the tenant considers everything in the weeks up to lease expiration. At this stage, you will need to employ the expertise of chartered surveyors in order to get help dealing with dilapidations or responding to dilapidations claims. This can help ensure a fair sum is paid for the repairs that are required by a tenant.
For landlords
A building and property consultancy aims to protect the value of your property.
Dilapsolutions offers dilapidations services of each surveyor, boasting highly experienced, expertly qualified, and thoroughly conscientious personnel. Carried out by chartered surveyors, each report is required before a tenancy contract begins or ends. This ensures that a tenant is not blamed for damage that was already present.
All occupiers and owners of commercial properties will experience dilapidations at some stage. Most usually lease-end dilapidations.
The majority of leases are 'full repairing and insuring' (FRi) in that the tenant is directly responsible for all repairs, decorations, and to reinstate their alterations at lease end.
Some are effectively FRi, in that because they are part of a far bigger building (eg a shop within a shopping centre, or a floor in an office block), the landlord has direct responsibility for maintaining common parts (roofs, structure etc.) , then recharging during the lease.
'Dilapidations' occur when tenants neglect their lease obligations, leaving properties in disrepair. After the lease ends, tenants lose the right to fix these issues unless the landlord permits it. This oversight opens the door for landlords to seek damages or compensation for unmet responsibilities.
A chartered building surveyor drafts a Schedule of Dilapidations (Quantified Demand) for the landlord, while another negotiates on behalf of the tenant. Then, a chartered valuation surveyor evaluates how these remedial costs affect the property's freehold value.
The law dictates that a landlord's compensation hinges on either the Cost of Works or the Diminution in Value cap. This necessitates the expertise of both types of surveyors.
The tenant must hire a chartered building surveyor to negotiate against this, and a chartered valuation surveyor to assess the impact of the Diminution in Value cap.
Exit Costs
At the end of a lease, dilapidations can hit tenants with unexpected costs. CFOs need to accurately budget for all exit expenses in their Accounts.
We collaborate with our clients to deliver detailed and strategic budget plans well before lease-end, whether it's a break clause or expiry. Our approach combines expert Cost of Works assessments from chartered building surveyors with insights from chartered valuation surveyors.
By doing so, we can then advise to what extent the statutory Diminution in Value cap is likely to reduce the sum to be paid.
To minimise future lease-end dilapidation costs, we create Schedules of Condition for new leases, capturing the property's initial state. Without these documents, tenants on FRi leases must return properties in better condition than they received them.
Notice To Reinstate
Of the three distinct types of breach (repair, redecoration and reinstatement), many leases provide that the landlord must give notice to reinstate a minimum period prior to lease end.
Failing to act promptly can lead to losing this right. The obligation to reinstate is limited by common law, just as repairs are governed by statute. Essentially, a landlord's compensation for a tenant's failure to restore alterations is capped at the lesser of the repair costs or any decrease in the property's freehold value.
Mistakes often arise when identifying what needs to be 'reinstated.' It's vital to pinpoint precisely what was originally leased to the tenant. This can unexpectedly include alterations or fittings added by the tenant under a prior lease.
If the current contract doesn't mandate restoring changes from existing and past leases, there's no obligation to reinstate those historical items. They now rightfully belong to the landlord.
Summary
‘Dilapidations’ represents a complex and potentially unexpected level of expenditure at lease expiry.
We uniquely provide both chartered building surveyors and chartered valuation surveyors to offer dilapidations advice and steer you through these complexities to the best outcome, whether you are the owner or outgoing tenant.
We provide this in respect of all commercial property types, throughout the United Kingdom & Ireland.
Services
Dilapsolutions
Chartered Surveyors
We are the only dilapidations consultancy in the UK & Ireland that provides both Chartered Building and Valuation Surveyors, ensuring the best results for our clients.